1. Bitcoin miners see light at the end of the tunnel
Beleaguered bitcoin miners are finally feeling the sunshine of spring after a cold, hard crypto winter.
The cryptocurrency’s rally above US$30,000 this year has been thrown a lifeline by power-hungry companies that pump new bitcoin into circulation, conspiring with falling electricity prices to boost their profitability.
According to data from Blockchain.com, the 30-day average of mining revenue rose to $27.34 million per day, the highest level since last June.
This comes as a relief to miners who are struggling to reduce the burden of huge debt as revenue is expected to be between $15 million and $21 million in the second half of 2022. They’re still a long way off the $61.2 million hit in November 2021.
“Many public miners were on the verge of bankruptcy at the end of last year. At current bitcoin prices, these companies have significantly improved cash flow and most of them should have no problem paying their obligations,” Jaren said. Melerud, said the analyst. Bitcoin mining service company Luxor.
Melrud said the miners’ debt-to-equity ratio now looks very healthy, adding that several companies restructured and paid down debt over the past few months.
Marathon Digital Holdings’ debt-to-equity ratio has fallen from 2 to 0.5 since the beginning of the year, according to Luxor data, for example, while Greenidge Generation Holdings’ has dropped from 11.7 to 5.8.
The spring thaw has seen investors flocking back to publicly traded crypto mining companies; Among the biggest players, Marathon and Riot Platforms have seen their share price more than triple this year, while the Valkyrie Bitcoin Miners ETF is up 162 percent and Greenidge 137 percent. But they’ve all still lost money since early 2022.
Bitcoin mining is the process by which a network of computers validates a block of transactions on the blockchain. Miners are rewarded with bitcoins for completing blocks, competing against other miners by solving complex math puzzles with energy-intensive computing systems, which means electricity comprises a significant portion of their operating costs. Is.
Falling electricity prices, particularly in the US, have eased pressure on the company’s margins, according to BTIG analysts, who said the cost of electricity to produce one bitcoin has fallen by about 40 percent since the end of last year.
This means that despite both the computing power available on the network and the difficulty of mining continuing to rise to new all-time highs – meaning it takes more power to mine a block – the 30-day average cost-per-mile for miners remains the same. – The transaction has fallen through. This is its lowest level since September, according to data from Blockchain.com.
Out of wood?
Miners can’t get too comfortable, as their fortunes are tied to bitcoin’s capricious price trajectory.
“If we see bitcoin trending up and consolidating, then the run-up in miners could do the same, we expect to see more volatility in the summer,” said Kevin Kelly, head of research at Delphi Digital. Compared to last year, the climate for crypto will remain the same through 2023.
Luxor’s Melrud said that despite improving their balance sheets, many miners still have significant debt to pay and are still struggling.
“The rise in the price of bitcoin has given these companies time, but if it were to drop to $20,000 it would be detrimental to these companies,” he said.
BTIG said most companies are focusing on debt reduction rather than spending on new equipment, even as the estimated cost of new mining rigs has dropped by about 69 percent through the end of 2021.
There are exceptions, however, with Cleanspark taking advantage of falling prices to buy 45,000 new mining rigs, which will almost double its computing power.
A sharp rise in electricity prices or a sharp drop in bitcoin could start a new cold wave. Although it is sunny at the moment.
“I don’t think we’re completely out of the woods, but I do think the worst is behind us,” said Marcus Sotiriou, analyst at digital asset broker GlobalBlock.
2. Bitcoin miners are on the rise. What does this mean for chip stocks?
A rally in bitcoin’s price this year has buoyed stocks such as cryptocurrency broker Coinbase Global and MicroStrategy, a software company that has invested heavily in the token. But, above all, it has given a boost to bitcoin miners.
Bitcoin is up nearly 80% so far this year as investors pour back into crypto after 2022, leaving it far ahead of the stock market. The Dow Jones Industrial Average and S&P 500 are up 2% and 8%, respectively, over the same period.
Companies with exposure to crypto, whether through ownership of digital assets or reliance on the crypto ecosystem for business, have been major beneficiaries. Coinbase (ticker: COIN) stock is up 83% since the beginning of January, and MicroStrategy is up 124%.
Bitcoin miners have done even better. From among the most beaten names in crypto in 2022, they are now some of the biggest winners of 2023. Riot Platforms (RIOT) is up 270% so far in 2023, while Marathon Digital (MARA) is up 224%.
This makes sense because miners stand at the center of a process called “proof of work,” which drives the bitcoin network. They use computers running on powerful chips – often warehouses of computers – to solve complex puzzles in a process that facilitates securing the network and processing transactions. Payments are in bitcoin.
How difficult the puzzles are, which affects how much energy is needed to solve them, largely depends on how many miners are participating in the process.
Months of high energy costs, increased competition, and low bitcoin prices—the largest digital asset lost two-thirds of its value last year—put intense pressure on miners’ balance sheets in 2022. Shares in Riot Platforms and Marathon Digital declined.
Argo Blockchain (ARBK) was restructured to avoid bankruptcy. Its shares are set to rise by 35% in 2023. Others weren’t so lucky: Core Scientific, among the biggest miners, filed for Chapter 11 bankruptcy protection late last year.
While risks remain – and competition remains high – cooling energy costs and rising bitcoin prices have made the whole venture attractive again, which explains the significant jump in crypto mining stocks. Argo was upgraded from Hold to Buy last Friday by analysts at Compass Point, who also raised their target prices on Riot Platforms and Marathon Digital.
Because crypto miners rely on computer chips—usually application-specific integrated circuits, or ASICs—chipmakers may seem like an alternative way to ride the trend. However, some of the biggest names in chips have distanced themselves from mining as crypto has taken a shine over the past year.
Intel (INTC) announced this week that it was discontinuing production of its bitcoin mining chip series, the Blockscale ASICs, only a year after it was launched. The company flagged in a product discontinuation notice on its website that it would stop taking orders in October before stopping shipments next April.
Intel did not immediately respond to a request for comment.
Nvidia (NVDA) also seems to be pulling back. While its ASICs were used to mine the second-largest cryptocurrency ether, similar to bitcoin mining, last year’s upgrade to the Ethereum blockchain network made that process largely obsolete. Even before the “merge” upgrade, Nvidia took steps to make its chips less attractive to miners in order to support its core customers in artificial intelligence and gaming.
In an interview with The Guardian published last month, Nvidia’s chief technology officer said that crypto “doesn’t bring anything useful to society.”
Manufacturers of two other popular ASIC chips used in bitcoin mining, Bitmain and MicroBT, are both privately owned and based in China. A third, less popular type of chip is made by Canaan (CAN), which is Chinese and listed on Nasdaq via American Depository Receipts.
Shares in Canaan, which has a market capitalization of less than $500 million, are up 32% so far this year. Investors would have been better off buying bitcoin mining stocks.
3. US launches first nuclear-powered Bitcoin mining plant
TeraWulf announced that it has successfully energized its entire 50-MW stake in the Nautilus Cryptomine facility, marking the launch of the first-ever US nuclear-powered Bitcoin mining plant.
With over 91% zero-carbon energy powering the facility, the Nautilus plant is truly a pioneer in its field. TeraWulf has managed to deploy its full share in phase one of the nuclear-powered Bitcoin mining facility, boasting 50 MW and 1.9 EH/s, ahead of schedule. The company plans to further expand its capacity at the Nautilus facility, with the option to add an additional 50 MW in future phases.
Rapid expansion of mining operations
TeraWulf currently operates an impressive fleet of approximately 34,500 latest-generation miners. This includes 18,500 miners at its wholly-owned Lake Mariner facility in New York and 16,000 self-miners at the trailblazing nuclear-powered Bitcoin Nautilus facility in Pennsylvania. Paul Prager, Chairman and CEO of TeraWulf, stated, “Our team has been working swiftly and diligently to achieve our stated goal of reaching 5.5 EH/s of operational mining capacity in Q2 2023.”
Prager further highlighted the significance of the Nautilus facility deployment, saying, “Not only does it represent the first nuclear-powered Bitcoin mining facility in the U.S., but TeraWulf now has the opportunity to realize the economic advantage of 50 MW of zero-carbon mining at what is arguably the lowest contracted power cost in the sector – just $0.02/kWh for a term of five years.”
TeraWulf currently has 60 MW operational at Lake Mariner and is nearing the completion of construction on Building 2, which will increase the facility’s operational capacity to over 110 MW in the coming weeks. Combining these assets, the company anticipates a total operational capacity of 50,000 miners (5.5 EH/s) in Q2 2023, corresponding to approximately 160 MW of power demand.